Bo Xilai addressing the court on Saturday: he faces charges of bribery, embezzlement and abuse of power. Photograph: AP

The trial of fallen politician Bo Xilai reached a dramatic peak before its third day closed on Saturday, when Bo faced down Wang Lijun, his former second-in-command, about the tale of murder and intrigue that precipitated his downfall.

Wang, 53, police captain of the south-western municipality of Chongqing while Bo was its communist party chief, revealed to the court new details about the aftermath of a murder in November 2011, which tore the two apart. Bo's wife Gu Kailai poisoned British businessman Neil Heywood in a Chongqing hotel over a property deal that went sour, and Wang, fearing retribution by Bo for his investigation into the case, fled to the US consulate in a neighbouring city seeking political asylum.

Bo, 64, is standing trial in Jinan, the capital of coastal Shandong province, on charges of bribery, embezzlement and abuse of power. The charismatic former commerce minister, once considered a contender for some of China's top political posts, has maintained a boldly defiant attitude over the last three days, flatly denying many of the prosecution's central charges. The trial will enter its fourth day on Sunday.

Wang told the court he informed Bo of the murder on 28 January 2012 and that Bo interfered with his investigation of the case by intimidating subordinate officers. "It was very dangerous at the time," he said. "First I suffered violence, then staff close to me and investigators in the case disappeared. I am not just a witness. I am a victim of Bo Xilai's case."

Last year, Wang, once notorious for his erratic, often frightening professional conduct – he reportedly enjoyed personally conducting autopsies – was sentenced to 15 years in prison for charges including abuse of power, defection and taking bribes. Gu is serving a suspended death sentence for Heywood's murder.

In court, Bo said Gu told him Heywood had died of a heart attack after heavy drinking and that Wang had concocted the murder story to frame her. He initially believed his wife: "I thought Gu Kailai is a fragile woman, she could not kill, and her relationship with Wang Lijun was very good. How could such an issue suddenly come to light?"

On the morning of 29 January, Bo found Wang in his office, punched him in the face in front of other officials and removed him from his post. "I found the edge of my mouth bleeding and liquid dripping out of my ear," Wang recalled. About a week later, Wang fled to the US consulate in nearby Chengdu and exposed details of the incident to stupefied diplomats before leaving the consulate of his own accord.

Bo told the court he was ashamed of how he handled Wang's defection. "I wasn't able to behave coolly at a critical juncture and made serious errors in judgment," he said, according to a court transcript. "So I bear some responsibility for Wang Lijun's flight and I feel very sorry for this."

Wang's testimony was not the day's only surprise. Bo also revealed details of his dysfunctional family life – he had been estranged from his wife for years – and admitted to having an extramarital affair.

Gu was furious when she found out, he said, and departed with their son, Bo Guagua, who now studies at Columbia Law School in New York. "She simply arranged for Bo Guagua to go to a foreign school and left," Bo said. Their marriage never fully recovered.

While much of Bo's performance over the past three days seems aimed at discrediting his wife as an unreliable witness – he has called her "crazy" and her testimony "laughable" – he expressed sympathy for her, saying she turned on him to avoid harsh treatment by prosecutors. "I still have feelings for Gu Kailai," he told the court. "She's a relatively fragile woman."

Hours before Wang's testimony, prosecutors accused Bo of embezzling 5 million yuan (about £530,000) of public funds in August 2000 because his family was short of money. Bo denied he intended to embezzle the funds, but admitted to knowing that they were in his family's possession.

Wang Zhenggang, a former land official in the north-eastern city Dalian, where Bo was mayor in the 1990s, testified that Bo asked him to help channel the funds to a law firm in Beijing owned by Gu. Zhao Dongping, then a lawyer at the firm, supported the testimony, claiming that he received the entire amount with the understanding that it belonged to Bo's family.

Bo then cross-examined Wang, dismissing his testimony as irrational, according to court transcripts released online. He said his family's economic situation was stable at the time – Gu owned five law firms in Beijing and their son was studying abroad on a scholarship.

Bo ridiculed Wang's assertion that he had asked Gu to accept the money in a phone call made in front of Bo. "It is not even what the most stupid corruption offender would do," he said. "Corrupt offenders with even the lowest IQ would ask who else in Dalian was aware of the money.

"When people speak with me, I first request they switch off their phone. I'm still a rather cautious person."